J & A Construction (scotland) Limited V. Windex Limited
| Jurisdiction | Scotland |
| Judge | Lord Malcolm |
| Neutral Citation | [2013] CSOH 170 |
| Court | Court of Session |
| Published date | 30 October 2013 |
| Year | 2013 |
| Date | 30 October 2013 |
| Docket Number | CA56/13 |
| OUTER HOUSE, COURT OF SESSION | |
| [2013] CSOH 170 | |
| CA56/13 | OPINION OF LORD MALCOLM in the cause J & A CONSTRUCTION (SCOTLAND) LIMITED Pursuers; against WINDEX LIMITED Defenders: ________________ |
Pursuers: D Thomson; TLT Scotland Ltd
Defenders: J Broome; Anderson Strathern LLP
30 October 2013
[1] In this action the defenders resist enforcement of an adjudicator's award of £120,000 or thereby on the basis that the pursuers' last publicly available accounts show an excess of liabilities over assets. They complain that the pursuers have failed to provide details as to their current financial position. Their note of argument states:
"An excess of liabilities over assets, taking into account contingent and prospective liabilities, is a basis for winding up a company under sections 122(1) and 123(2) of the Insolvency Act 1986. Such an excess of liabilities over assets accordingly establishes insolvency. It is proper to infer from the whole pleadings, and bearing in mind the flexibility of commercial cause procedure, that the pursuer is insolvent, or at least verging on insolvency".
Reference is made to a substantial claim against the pursuers in Glasgow Sheriff Court. It is contended that no blame for the state of the balance sheet lies with the defenders' failure to pay the award. Mr Broome submitted that the pursuers allowed many months to elapse between the application for payment and the referral to adjudication. The absence of urgency then indicates that there is no urgency now. The adjudication regime set down in the Housing Grants, Construction and Regeneration Act 1996 does not exclude the equitable principle of the balancing of accounts in bankruptcy. It should be applied in the present circumstances to prevent enforcement, failing which, before any enforcement, there should be an inquiry into the financial position of the pursuers.
[2] For the pursuers, Mr Thomson stressed that there had been no formal insolvency event, such as a liquidation or an administration order. Failing an offer to prove that such is imminent, it is not open to the defenders to resist enforcement by reference to mere averments that the pursuers are insolvent, or verging on insolvency. Mr Thomson was content to proceed upon the basis that the pursuers' liabilities continue to exceed their assets. However, many companies operate successfully for long periods in such circumstances. The pursuers trade as a going concern, and have continued financial support from associated companies and directors' loans, which are not repayable in the short to medium term. The pursuers are not the subject of any insolvency proceedings nor any similar arrangement for creditors. Additional sums will become due by the defenders in respect of the final account. The policy of the adjudication regime is that adjudicators' awards should be enforced by the courts. To allow contested averments as to insolvency, or near insolvency, to delay matters would run counter to the need for speedy decision-making in adjudications.
Discussion
[3] A similar issue came before Lord Macfadyen in SL Timber Systems Limited v Carillion Construction Limited 2002 SLT 997. At paragraph 30 his Lordship said this:
"...the cases do not seem to me to afford any clear support for the proposition that, in the case of a pursuer company which is not in liquidation, averments of insolvency are a relevant defence to an enforcement action. It seems to me that I must approach the matter by turning once again to the terms of the 1996 Act and the scheme made thereunder. There seems to me to be nothing in the legislative provisions to qualify the expressed intention that an adjudicator's provisional award should be enforced pending final resolution of the dispute, to the effect of making an exception in the case where the claimant, although not in liquidation, can be shown to be insolvent. I am therefore not persuaded that the defenders' averments to the effect that the pursuers are insolvent constitute a relevant defence".
This provides powerful support for Mr Thomson's basic proposition.
[4] In Integrated Building Services Engineering Consultants Limited v PIHL UK Limited [2010] BLR 622, Lord Hodge expressed qualified agreement with Lord Macfadyen's approach. The qualification was "insofar as it may be understood to assert that the undisputed insolvency of the claimant cannot be a defence if the claimant is not in liquidation" (emphasis added). The pursuers were in administration with a deficiency of assets for non-preferred creditors of £6.9 million. The administrators considered that unsecured creditors would receive a dividend of no more than 3 pence in the pound. After the administration the company would be wound up or deemed to be dissolved. At paragraph 28 of his judgment, Lord Hodge said:
"I doubt if allegations of insolvency, which were seriously contested, would justify the application of the principle (of balancing of accounts in bankruptcy) in the context of the 1996 Act".
At paragraph 34 his Lordship said:
"It may be that it is very difficult or almost impossible to operate the principle when a person's insolvency is not demonstrated by a formal legal act.....".
Earlier he observed (paragraph 21):
"I have no difficulty in accepting a proposition that mere averments of the claimants' insolvency, which the claimant contests, as in the SL case, should not provide a basis for the court delaying the enforcement of an adjudicator's decision. To allow delay on that basis would defeat the aims of part II of the 1996 Act".
[5] Mr Broome pointed to the terms of sections 122 and 123 of the 1986 Act. They allow a company to be wound up by the court if it is unable to pay its debts. A company is "deemed to be unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities" (section 123(2)). Counsel submitted that, unless the pursuers satisfy the court that they are able to pay their debts, the company should be treated as insolvent, or verging on it, in which case the defenders should be allowed to retain the sum awarded in the adjudication by operation of the doctrine of the balancing of accounts in bankruptcy. Reference was made to several cases and textbooks which vouch the proposition that this is an equitable principle which, when appropriate, can be applied in cases where the creditor is on the point of insolvency (sometimes referred to as vergens ad inopiam).
[6] I recently reviewed this area of the law in Connaught Partnerships Limited (in administration) v Perth & Kinross Council [2013] CSOH 149. I noted that in England and Wales, and subject to certain qualifications, a stay of execution of summary judgment will usually be awarded if the claimant is insolvent. The English solution can be achieved in Scotland by the balancing of accounts in bankruptcy. This ensures that the claimant's insolvency does not cause a provisional award to become, in effect, the final outcome. The issue in the present case comes to be this - have the defenders averred sufficient by way of the alleged insolvency of the pursuers to prevent enforcement of the adjudicator's award, or at least to require an investigation into whether the pursuers will be able to...
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